Key Takeaways
- • Global macro and trend-following hedge funds declined 2.7% in April 2015 (HFRX Macro/CTA index) as market reversals caught positioned trades off-guard, including a 3.8% drop in the US Dollar index, 4.3% decline in the DAX, and a 20.9% rally in WTI crude oil futures.
- • The broad hedge fund industry posted modest gains of 0.2% in April despite sector-specific headwinds, with equity hedge funds (+1.2%), relative value (+1.0%), and event-driven strategies (+0.5%) outperforming macro and CTA strategies in dollar terms.
- • Energy sector reversals proved particularly damaging to trend-following models that had positioned short in the sector; by month-end, fund managers had reduced energy exposures in response to the unexpected rally.
- • Portfolio managers at firms like GAM maintain conviction in medium-term thematic positions (US dollar strength, European and Japanese equity outperformance, long fixed income) despite April's tactical setbacks and expect many trends to resume course.
- • Weakness in US economic data relative to expectations triggered broad market reversals across currencies, equities, bonds, and commodities, creating a challenging environment for strategies dependent on consistent directional trends.
Summary
April 2015 proved difficult for global macro and trend-following hedge funds as early-month gains reversed sharply following weaker-than-expected US economic data. The HFRX Macro/CTA index fell 2.7% during the month, underperforming the broader hedge fund industry, which posted marginal gains of 0.2% as measured by the HFRX Global Hedge Fund index. The reversals were widespread across major asset classes: the US Dollar index depreciated 3.8%, the DAX declined 4.3% in euro terms, and safe-haven sovereigns including German Bunds, US Treasuries, and UK Gilts all sold off. Conversely, WTI crude oil rallied sharply by 20.9%, creating particular stress for trend-following models positioned short in the energy sector.
The tactical challenge centered on the disconnect between positioning and market behavior. According to Anthony Lawler, portfolio manager at GAM, global macro funds had been positioned to benefit from US dollar strength, outperformance in European, Japanese, and Chinese equities relative to US equities, and long fixed income positioning. The energy rally caught trend-following algorithms off-guard, forcing managers to reduce energy sector exposures by month-end. Despite these April reversals, Lawler noted that hedge fund managers' medium-term conviction theses largely remained intact, with traders expecting many thematic trends to resume their longer-term trajectory.
Other hedge fund strategies benefited from the turbulent backdrop. Equity hedge funds gained 1.2%, relative value strategies returned 1.0%, and event-driven funds posted 0.5% returns during April, all in US dollar terms. Traders remained invested in themes predicated on dispersion expectations within asset classes and across geographies, suggesting that sector rotation and regional divergence—rather than broad directional bets—provided more stable performance drivers during the month. The April volatility underscored the ongoing challenge facing macro and CTA strategies in an environment characterized by abrupt reversals and range-bound price action that disrupted the persistent trends these strategies typically exploit.
The tactical challenge centered on the disconnect between positioning and market behavior. According to Anthony Lawler, portfolio manager at GAM, global macro funds had been positioned to benefit from US dollar strength, outperformance in European, Japanese, and Chinese equities relative to US equities, and long fixed income positioning. The energy rally caught trend-following algorithms off-guard, forcing managers to reduce energy sector exposures by month-end. Despite these April reversals, Lawler noted that hedge fund managers' medium-term conviction theses largely remained intact, with traders expecting many thematic trends to resume their longer-term trajectory.
Other hedge fund strategies benefited from the turbulent backdrop. Equity hedge funds gained 1.2%, relative value strategies returned 1.0%, and event-driven funds posted 0.5% returns during April, all in US dollar terms. Traders remained invested in themes predicated on dispersion expectations within asset classes and across geographies, suggesting that sector rotation and regional divergence—rather than broad directional bets—provided more stable performance drivers during the month. The April volatility underscored the ongoing challenge facing macro and CTA strategies in an environment characterized by abrupt reversals and range-bound price action that disrupted the persistent trends these strategies typically exploit.
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